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2015 has delivered a mixed year for initial public offerings, with an equal mix of winners and losers. Eagerly anticipated IPOs from Box (BOX) and Fitbit (FIT) stand at the top of the loser’s list, trading well below their first publicly traded prices while biotech firms were clear winners this year. Small-caps dominate the entire listing, which is normal because most companies that go public have just met minimum exchange capitalization requirements.

Gauging the first-year performance of a publicly traded company isn’t as easy as it sounds because just a handful of investors receive allocations entitling them to shares at the underwriting price while everyone else has to wait in line for the exchange opening. While they wait, the price is adjusted to supply and demand, often triggering high percentage price movement.  

This misalignment can yield opening bids that double the underwriter’s price. It affects losers as well, with poorly received IPOs often trading 15% to 30% lower. Not surprisingly, the majority of IPOs trade higher than the underwriter’s price on their first day because issuing firms attempt to set the price at a level that paints the tape with a much higher opening.

2015 Biotech IPO Winners

Small-cap biotechs Sparks Therapeutics (ONCE), Global Blood Therapeutics (GBT) and Aclaris Therapeutics (ACRS) represent three of the four 2015 IPOs that have booked gains in excess of 100% of the underwriting price. ONCE has been listed longer than its companions, going live at 23 on January 30 and booking a 154% gain while GBT and ACRS came public in the second half of the year. Those companies have risen 148% and 115%, respectively.

ACRS booked the strongest performance compared to its first publicly traded price of 11.94, which is 94-cents above the underwriting price. Contrast this with GBT and its IPO price of 20. The stock opened at 34.65 on August 12, 2015,  or more than 73% higher. ONCE brings up the rear with this metric, opening at 45.10 or nearly 100% higher than the offering price. This translates into a more realistically gain of 29% or far lower than 154% compared to the underwriting price.

Shake Shack

East Coast fast food chain, Shake Shack (SHAK) presented one of the most eagerly anticipated IPOs of 2015, offering 5-million shares at 21 on Jan. 30, 1015. It opened at 47, or more than 100% above the underwriting price, and ground sideways into an April breakout that yielded a May high at 96.75. The bubble then burst, dumping the security at a similar angle of trajectory as the initial rally burst.

It sliced through the first publicly traded price in August and spent the next three months grinding sideways at that level. While the company has gained more than 100% compared to the underwriting price, it’s gained no ground since the first day of trading, setting up an adverse opportunity: cost scenario for investors who bought on the first day of public issuance.

GoDaddy

Internet provider, GoDaddy (GDDY) offered one of the year’s biggest and top performing IPOs. The $5-billion company came public at 26.15 after underwriters set the IPO at 20 and is now trading in the low 30s, which denotes a 61% rally. It peaked near 33 in June and sold off to an all-time low at 21.04 in August. The subsequent recovery reached the summer range high, suggesting a breakout and new uptrend in coming months.

Securities that clear trading ranges posted in the first months after an IPO can gain significant ground in a relatively short time because there are no predetermined support or resistance levels. This often allows uptrends to exceed logically placed price targets. In GDDY’s case, the 12-point range posted between April and August translates into a measured move target of 45.

Shopify

Shopify (SHOP), a Canadian e-commerce software provider, currently valued at more than $2-billion, offers shopping carts for online retailers, with more than 162,000 merchants in more than 150 countries. It reported more than $105-million in 2014 revenue. However, in 2015 it experienced losses that the company says are “likely to continue.” Nevertheless, earnings momentum is building in the second half of 2015, carving out a long-term path to profitability.

The company came public at 17 with 7.7 million shares on May 20 and then opened at 28. It carved out a trading range between 24 and 38 into June and settled near the IPO price in the fourth quarter of 2015. Like GDDY, this price placement gives initial stakeholders a profit near 70% while public buyers are struggling, with capital tied up in non-performing shares.

The Bottom Line

2015 has produced a mixed year for initial public offerings, with small biotech companies overcrowding the winner’s list. Eagerly anticipated offerings in other sectors show substantial percentage gains but are struggling to break out of recent trading ranges. Total IPO activity has fallen since 2014, with that trend likely to continue in 2016.

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